'House of Cards' in First Flush of Potential

Netflix premiered its first original
production, House of Cards, to strong
critical acclaim, but the question of
whether the reported $100-million production
could be the first online series
to become a major syndicated
property remains an open one.

Both Media Rights Capital,
which fully financed the series,
and Netflix, which outbid
more traditional networks
for first-run rights, would
only comment that they do
not disclose financials. Netflix
also doesn’t disclose streaming
numbers, so how well House of
Cards is quantifiably doing is
currently an unknown.

Media Rights Capital already
has some ancillary revenue
streams in place for House of
Cards. First, it owns international
rights to sell the show in
territories where Netflix is not present, with
deals in place with Canal Plus in France and
Spain and Sky Deutschland in Germany, and
other deals pending. Netflix’s streaming service
is currently available in the U.S., Canada,
Latin America, the U.K. and Ireland.

MRC also retains the series’ second-window
rights, which it could, in theory, sell again to
Netflix, along with video and syndication
rights. MRC maintains traditional windows
for both video and syndication sales, with the
home video and DVD window beginning four
orfive months from the show’s Feb. 1 launch,
and syndication sales commencing four or five
years from now.

How all that will pan out remains yet another
question. “I can’t speculate on the future as the
industry is constantly evolving,” says one executive
close to the production. “Netflix looks
very different today than it did four years ago, or
even a week ago. We don’t know what syndication
will look like. We have no benchmark—no
other show has ever been released like this.”

House of Cards’ syndication potential also
begs the question of who might buy it. The
series, which stars Kevin Spacey and Robin
Wright, is analogous to HBO’s The Sopranos,
says Dan Cryan, research director for digital
media at market research company IHS: It’s
an expensive, signature show produced specifically to draw people to the service. But if
one draws that analogy out further, The Sopranos
did not syndicate well. A&E famously
acquired it for a record-setting $2.5 million
an episode, but viewers—even those who had
not seen the show on HBO—did not show up
to watch the series on basic cable.

HBO has in fact withdrawn from syndication.
The network’s most successful syndication
deal was for Sex and the City, which it sold into
broadcast and cable syndication, first on TBS
and WGN and later on E! and Style. But unlike
more successful syndication sitcoms, such as
Warner Bros.’ Friends and Sony’s Seinfeld, Sex
and the City ran for only one cycle. Later, HBO
sold Entourage and Curb Your Enthusiasm into
broadcast syndication but had to withdraw the
shows after one year because they were not
drawing large enough ratings to be profitable.

As a result, HBO has changed its strategy,
keeping all of its shows exclusive to itself and
making all seasons of them available to subscribers
via its on-demand streaming
service, HBO Go.

“One of the reasons that HBO isn’t
putting their stuff out there is because
it hurt HBO’s perceived value,” says
one syndication executive. In other
words: If you put Entourage on TV
stations and no one watches it, was it
a good show to begin with? Better to
lure viewers to subscribe to HBO and
let them find out for themselves.

That’s probably true for Netflix as
well, which styles itself as an online
HBO, says Cryan.

“In markets where Netflix is active,
with the possible exception of a DVD
release, it behooves Netflix to keepHouse of Cards for itself,” says Cryan.
“What does it do to the value of a Netflix subscription if the series shows up on Spike?”

Another problem with the potential syndication
of House of Cards is that the perfect customer
for the highly serialized show is Netflix
itself, which is why the SVOD service might
end up licensing the show’s second window as
well instead of letting it go to someone else.

For now, the best way to look at the $100 million
spent to produce House of Cards (which is
not necessarily what Netflix paid MRC to license
the show) is as an aggressive marketing play.

“Think of it as a subscriber acquisition or
marketing cost,” says David Bank, managing
director, media equity research at RBC Capital
Markets. “Think about where [Netflix] is
in the dialog right now. House of Cards represents
the greatest promotional bang for Netflix’s buck.”